I hope everyone had a happy and safe new year and holiday season. We are trying to get back to the normal swing of the markets as the December payroll report was a disappointment this week and evidences a tepid job environment. Here are some of the details:
- December Payrolls: +50,000 (below the 100,000 needed for population growth).
- Unemployment rate: 4.4% (unchanged from November).
- 2025 full year: 584,000 jobs added, averaging just 49,000/month.
- Combined downward revisions for October and November of -76,000.
- Private sector: +37,000.
- Government: +13,000 (federal +2,000, state -7,000, local +18,000).
- Federal employment down 277,000 jobs since January 2025 (-9.2%).
- Unemployment rate of 4.4%.
- Part-time workers of 5.34 million which is up 980,000 year-over-year.
- Labor force participation: 62.4%.
The reduction in the government workforce was realized mostly in October and the government shutdown did not help matters either.
One-Time Events
The government shutdown and the reduction of the federal workforce were one-time events in 2025. For 2026, there are also one-time events emerging that may impact certain sectors of publicly traded companies (or not). I’ll address a few below:
- Venezuela: The US is now in control of the oil business here as Presdient Maduro was removed from office. The immediate impact was of little consequence to oil trading this week as Venezuela is less than 1% of global production (900k barrels daily). However, this will likely change in the coming years as it is expected US companies will rebuild their dilapidated energy infrastructure. This oil is heavy and high in sulfur content and the best refineries for this kind of crude are in Texas so this change will benefit the US energy business. It will take many years (5+) and around $100B in investments to get to full capacity which is around 3-4mm barrels daily. For reference, daily global production is around 100mm and 20mm for the United States.
- Greenland: This is a real consideration for national defense and I don’t think there will be any change here unless it is done with cooperation from Denmark and the people of Greenland (independent since 2009). The Arctic Sea is the real consideration as warmer climates have opened up shipping lanes for Russia and China. Both countries have publicly announced they intend to increase their presence in this area from a military and commercial standpoint. There is no direct impact on US companies aside from the defense sector.
- Credit Card Interest Rates: There was an informal announcement from the President this week that the administration would move to cap credit card interest rates at 10%. I am not sure how this would be done exactly but this is something that was promised on the campaign trail in 2024. The credit card business is highly (too) profitable for the major banks so this would impact earnings. It could also impact the structured finance markets which are used to finance credit card master trusts so institutional investors will push back on this change. Supposedly, the cap would be temporary and last one year to give consumers a chance to de-leverage. You can see an X post above from researcher Larry McDonald that shows how much these rate have risen since the financial crisis. There seems to be momentum across the political spectrum on this issue so this could happen.
- Tax Rates: The One Big Beautiful Bill Act (OBBB) passed in 2025 created tax cuts for consumers so there will be additional money to be spent this year. Consumer spending drives 70% of the economy.
- Depreciation Schedules: There are several new depreciation schedules for companies in the OBBB. In particular is the new 100% first-year depreciation for Qualified Production Property (QPP) that is a game changer for manufacturers. Buildings typically depreciate over 39 years so this provides a huge incentive for re-building the manufacturing base of the United States.
The S&P 500
The S&P is beginning to show signs of breaking out from a very choppy three-month consolidation period. Momentum has stalled over the last few months but we did move higher into technical resistance at 6975 (yellow line). What happens next will dictate the tone for Q1.
If we can break out above 6975 that would give confidence there is another leg up in this uptrend. If we hit our head on the ceiling, then we will likely re-test the 50-day moving average which is about 10% lower.
The Yield Curve Is Steepening
A steep yield curve signals a good economy and provides an incentive for banks to lend out on the yield curve to take advantage of the positive spread between what they pay depositors and receive from borrowers. Banks may need a steep yield curve if the governments caps how much interest they will get from their credit card portfolios!
The disappointing payroll number on Friday provides an argument for further rate cuts but there is zero expectation that will happen at their next meeting on January 29th. I don’t see much room to cut from here with consumer tax refunds and the potential for a manufacturing build out in 2026. Most likely nothing happens until after we get a new Fed Chairman in May.
Thank you for being a reader!
President, Kisco Capital
